Editor's note
International Internet Magazine. Baltic States news & analytics
Tuesday, 19.03.2024, 13:35
Latvian development: in search for a new “political economy”
Latvia has joined, at last, already existing “club” of
economic forums - various global, regional and national. LEF has gathered participants
from all walks of socio-economic development discussed during the whole day
numerous developmental issues: from information and communication technologies
(ICT) industry to chemistry and pharmaceuticals to metals, machinery and
manufacturing industry to knowledge economy and education… The forum organised by the Latvian Academy
of Science (LAS) has made some vital steps towards creating a new narrative in Latvian
political economy.
Made in Latvia vs. “making in Latvia”
However, the forum’s title (“made in Latvia”), to my mind sounds little confusing. Of course, supporting national producers (goods and services “made in Latvia”) is a vital one; but making competitive goods and services is even more important. Only with the help of new technologies and new R&D national producers can be competitive in EU and the world.
LAS vice-president and chairman of the national metals and machinery industry association, prof. Andrejs Krasņikovs mentioned a renewed role of industrial sector and machineries in country’s economy. However, he mentioned a decreasing labour productivity in Latvia: it has grown during last decade by only about 66%, one of the lowest in the EU-28. For example, labour productivity on EU’s average is at the level of € 32 while in Latvia it is about € 8,4.
Knowledge, skilled
workforce and investments are the main factors in innovative goods and services
competitive both in the EU and globally. Though, according to Latvian
economy ministry, the country will need by 2020 skilled workers in mechanical-
and metal-processing sectors, as well as in energy, electronic and
machine-construction. By ministry’s account, by 2020 the country will be in
short of 15,7 thousand skilled workers, including 12,5 thousand engineers and
PhD students, as well as about 750 specialists with doctoral degrees.
Stimuli for innovations: political and financial
According to the EU-2020 strategy, the member states have to
invest in R&D about 3% of GDP by 2020. However, for Latvia this figure is
“allowed” at the level of 1,5%; only by 2030 the investments into science will
reach the desired 3% of GDP. Presently budget allocation for R&D in Latvia,
according to Andrejs Krasņikovs is
about 0,8% and will reach 1.2% by 2017.
According to industry
sector’s representatives (e.g. Andis Sekatis), main share in Latvian manufacturing
and “processing” industry belongs to: food processing (about 23% of the total),
wood industry (28%) and machine- and metal-processing (17%) with about 19-20%
of workforce in each. This “complex sector” is important for country’s GDP: its
share in national export is about 20-30%.
However, the number
of patents in Latvian industry is far from desired: with the highest in the
Baltic region during 2008-09 and 2013, the number reduced drastically in 2014.
(see table below).
2005 |
2006 |
2007 |
2008 |
2009 |
2010 |
2011 |
2012 |
2013 |
2014 |
|
Latvia |
9 |
10 |
18 |
42 |
49 |
32 |
28 |
25 |
80 |
8 |
Lithuania |
1 |
2 |
9 |
11 |
13 |
9 |
14 |
19 |
22 |
24 |
Estonia |
4 |
7 |
13 |
7 |
32 |
27 |
28 |
41 |
41 |
36 |
Source: EU patent office, EPO.
Apparent progress in Latvia is within the digital agenda. Latvia is within 10 top
internet users both in Europe and the world: about 76% houses and apartments
are linked to webnet; during last seven years more than 31 thousand people went
through free of charge internet courses. Latvia is among three European leaders
in creating new digital companies (first is by Estonia, second by Sweden;
Lithuania is at the 7th place).
However, resources for growth are numerous: interesting
enough, according to Certus, foreign
students actively “participated” in national economy: during 2015-16 the share
of foreign students reached about € 148 million (about 0,6% of GDP).
Latvian political economy: main issues
After 25 years of
the renewed independence, a pivotal even took place in Latvian developmental
history - first economic forum with the main idea of defining national economic
identity and Latvian role in the EU and the world.
The forum has shown serious political and economic “elites”
interest to increase growth and prosperity. Strategically, participants were
unanimous that knowledge, skilled
workforce and investments play vital role in creating competitive innovative
goods and services both in the EU and globally. However, the lack of “combined”
political-economic “instruments” hampers tactical steps to reach the optimal
goal.
Latvian development, as part of the EU economic policy, has
been affected by the EU’s general political guidelines (including EU-2020
strategy) and by the EU Strategy for the Baltic Sea Region. In the “great
Baltic Sea Area” there are already some effective developmental models, e.g.
German managed capitalism and Nordic welfare system. Generous welfare ideology
in numerous Nordic and western European states works perfectly well: guaranteed
high-quality health care, free education, generous paid leaves for new parents,
comfortable transport and infrastructure, clean air and water, to name a few. By
most standards these models are offering
its citizens a fairly decent life.
Most countries in
the Baltic Sea Area are quite productive too although not so efficient as in
the US. For example, these countries over all produce about a quarter less per
person then in the US, but that’s mainly because they take more vacations and
retire younger, which are not obviously bad things after all.
However, watching
EU institutions in action one can see that the EU’s “deals” concerning the debt
crisis that began in Greece and spread across much of Europe were quite shocking
with the prevailed combination of callousness and arrogance.
Although the EU
politicians and some big EU states’ leaders often seem wrong “about economics”:
for example, though the austerity measures imposed on small states (e.g. Greece
and Latvia) have been often economically disastrous, they continued to act.
Politically,
Eurocrats got away with this behavior because small nations were easy to bully,
too terrified of being cut off from EU’s financial support to withstand
unreasonable demands. However, the EU’s elite seemingly understand that they
could make a terrible mistake if it can impose the same pattern of behavior to EU
bigger states. This is what has lead to “already intimations of disaster in the
negotiations taking place between the EU and Britain” argues Paul
Krugman in The New York Times, May5,
2017.
https://www.nytimes.com/2017/05/05/opinion/european-union-france-election.html?_r=0
A new narrative for the Latvian political economy is gathering
strength at a time when European economic integration project is under stress
and its future is subject to fierce discussion (some say it is even totally unclear).
The national governments and political leaders need to find out the essence of
national political economies, stop playing the blame game and instead rally
save the European Union.
Like in Latvian development, the EU has a lot of
shortcomings that needed to be addressed. Here the scientists’ plans have to be
less bureaucratic to be “operative” and quick to understand: so-to-say, being agile,
i.e. helping to do more with less efforts and resources, which are quite scarce
in Latvia.
The idea of Latvian political economy can help: finding out
what policies the government shall put in place, what economic system shall be
adopted, to actually bring about necessary changes. Ideas abounded, from
familiar solutions – retraining people to make sure they have the skills they
need, reforming tax systems – to more radical ones.
Of course, the shape of the political economy in modern
Latvia will depend on the decisions being made by the politicians and
economists. But the main question remains: will Latvian be happy with the new
decisions? Because when people are happy, then they are more energetic, more
productive and more creative. The atmosphere of growth can really boost
happiness.
Let’s be clear:
Latvian policy and economy elites are getting a time-limited chance to mend the
errors and find a “proper marriage” between politics and economics. Still most
of Latvian political parties proclaim ideological rather than economic
priorities…